The US Federal Reserve chairman Ben Bernanke’s move to print more money highlights the economic jam Australia is getting itself into. The world’s biggest economy is promoting export-led growth by driving down its exchange rate. That’s pushing up the currencies of other countries, such as Australia. There’s not much we can do about this. But we have made things worse by failing to exercise fiscal discipline when resource boom money was falling from the sky.

On Friday, the Organisation for Economic Co-operation and Development report on Australia called for a budget stabilisation fund that would quarantine the temporary bounty of booms so it could be spent when the economy turns down. Unfortunately the suggestion, previously pushed by The Australian Financial Review, has come a little late.

The US Fed intends to print an extra $US45 billion of greenbacks each month and to inject the money into the American economy by purchasing the bonds of its own government. Japan and the UK have their own versions of so-called quantitative monetary easing. As ever, Australia’s relatively small and resource-exporting economy will have to roll with the punches. That means our currency will likely remain strong, even though our commodity export prices are turning down, and our exporters will continue to face strong headwinds.

Australia got through the global financial crisis thanks to China’s quick recovery and the rebound in our iron ore and coal export prices. Now the going has become tougher, the temptation is to let the budget remain in deficit. Senior Labor MP Joel Fitzgibbon has broken party ranks by calling on the government to give up on the promised surplus, echoing both the Greens on the left and some leading private sector economists.

But we are heading into an election year. This newspaper continues to support the Gillard government’s pledge to deliver a surplus this financial year. Take the brakes off now, step away from that line in the sand, and we risk further inflating expectations of what voter bribes the budget can deliver. What’s the difference, anyway, between a $5 billion deficit and a $10 billion one?

When the GFC hit, we had room to move: the budget was in surplus, official interest rates were above 7 per cent and the floating exchange rate was free to depreciate.

We do not have the same luxuries now. The Reserve Bank already has cut its cash rate to the 3 per cent “emergency” rate reached during the crisis. The budget remains in deep structural deficit. And the floating exchange rate is no longer playing its usual stabilising role because it is being held hostage by the currency wars.

Moreover, we are now confronting the downside of the biggest commodity price and resource development boom in our history. This will now put a squeeze on national incomes and undercut our economic growth rate. It is hard to see how a revival in interest rate-sensitive housing construction, for instance, can fill the gap. In an election year, it is not difficult to imagine how things could unravel. A political retreat from a budget surplus would put our AAA credit rating at risk. A downgrade in Australia’s sovereign rating in turn would threaten the credit ratings of our major banks – the same banks that stood up well to the GFC storm.

The narrowing of our options exposes the costs of a decade of failure to press ahead with productivity-enhancing policy reforms. The OECD report calls for the obvious reforms to the tax system previously urged by the Financial Review but which the political system has refused to consider. The OECD is more diplomatic about Labor’s Fair Work Act. But it tellingly points to the Productivity Commission’s review of the retail sector in calling for industry-by-industry measures to free up productivity-destroying regulation of our job market.

Again, neither side of politics is prepared to face up to this.

Nor does the entire nation appear that disturbed by alarming evidence that our education system is failing to impart basic skills to the workforce, as shown by an international ranking of reading skills for primary school students. The basic problems are obvious: a lack of attention to hard work in the classroom, the low expectations of teaching as a profession and a stubborn adherence to fashionable education theories long after they have been shown to have failed. Julia Gillard’s much touted Gonski report has little to say about these fundamentals, instead resorting to the fallacy that spending more money that isn’t there will fix things.

As the OECD spells out, there is much that is right with Australia. But much of our current extraordinary prosperity is due to good luck that is now receding. Now we need to get serious about sustaining our good fortunes. There is not much we can do about the squeeze from the high dollar. But we can’t afford to dodge needed reforms such as to the tax system and the job market. We must face up to the real problems undermining the performance of our schools. And the budget crunch is not a short-term question about this year’s surplus. It will likely last for the rest of the decade and it is dangerously delusional to pretend and act otherwise.